Russia: Overview

RENTAL YIELDS

Last Updated: Jun 25, 2009

Russian yields are almost 2% lower than in 2008 figures

Moscow apartment gross rental yields are now only 3.41%, on average - 1.62% lower than a year ago.

This is a very significant shift.  Apartment prices decreased slightly in Moscow, or at least prices of the upper-end central-Moscow apartments which feature in our survey did - to an average of US$17,899 per square metre (sq. m.).  So rents in Moscow must have fallen considerably.

A typical 120-sq. m Moscow apartment can now generate a yield of around 3.45%, and sell for about US$16,521 per sq. m.

St. Petersburg apartments generate higher yields at around 6.9%, on average.

Yields have also fallen in St. Petersburg. The Global Property Guide estimates that average St. Petersburg yields have fallen by 1.57% since the same period last year.

Compared to a 120-sq. m apartment in Moscow, an apartment in St. Petersburg of the same size typically yields around 6.21%, and sells for US$5,166 per sq. m.

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TAXES AND COSTS

Last Updated: Jul 23, 2008

High, flat taxes for non-residents

Rental Income: Rental income for non-residents is taxed at the flat rate of 30%. The rental income of foreign legal entities without a permanent establishment in Russia is subject to withholding tax, levied on gross rentals at 20%.

Capital Gains: Capital gains realized by non-residents for selling Russian property are taxed at a flat rate of 30%.

Inheritance: Since January 1, 2006, there has been no inheritance tax.

Residents: Residents are taxed on their worldwide income at a flat rate of 13% with numerous deductions available.

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BUYING GUIDE

Last Updated: May 14, 2007

Buying costs in Russia are among the highest in Europe

According to Global Property Guide research, total roundtrip costs are between 20% and 25.5% of the property value, among the highest in Europe. Bulk of the cost goes to VAT at 18%. Brokerage fees amount to 2% for properties more than US$2 million, otherwise the fee is 5%. The buyer should be cautious when buying unfinished units.

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LANDLORD AND TENANT

Last Updated: Nov 13, 2006

Pro-tenant rental market in Russia

Russia’s rental market is pro-tenant.

Rents: Rent is by agreement between the parties. However, rents can only be adjusted after one year.

Tenant Security: The tenant can only be evicted after non-payment of rent for six months. However, the tenant is given up to a year to amend the violation. The tenant can also cancel the contract anytime simply by giving a three months’ notice.

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ECONOMIC GROWTH

Last Updated: Mar 17, 2009

Economic recession expected in 2009

Russia is the largest country in the world in terms of land area, larger than the rest of Europe and USA combined. Although the population has been declining slightly, at 142 million in 2007 it is the sixth largest in the world.

Russia is heir to the former Soviet Union. After the union collapsed in 1991, Russia lost much of its international influence as a superpower. Since then, it has engaged in a constant tug of war with the West, for influence over the former Soviet republics.

Russia has the world's largest natural gas reserves, the 2nd largest coal reserves and the 8th largest oil reserves. It is the world's leading natural gas exporter and the second leading oil exporter. In 2007, it was the world’s top oil producer, overtaking Saudi Arabia.

Russia also has huge amounts of mineral reserves including platinum, nickel, aluminum, iron ore, copper gold and diamond. Oil, natural gas, metals, and timber account for more than 80% of Russian exports abroad. Revenues from oil and gas account for 50% of Russia’s budget.

However, global commodity and energy prices softened greatly in the second half of 2008. For instance, the average price of Europe Brent oil fell from more than US$132 per barrel in July 2008, to US$39.95 in December 2008 before rising slightly to US$43.32 in February 2009. The last time that the price of all was that low was in 2004.

The commodity price declines have had a major impact on Russia’s economy, which grew by a mere 1.1% y-o-y to Q4 2008 down from 6.2% annual growth in Q3. Full year economic growth for 2008 was around 6.2%, down from 8.1% in 2007 and 7.4% in 2006. Average annual GDP growth from 1999 to 2006 was 6.8%.

The economy is expected to contract by around 1% in 2009 before recovering slightly in 2010 with 1% GDP growth.